proactive monitoring of afs by johannesburg stock exchange
TRANSCRIPT
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Proactive monitoring of AFS by Johannesburg Stock Exchange
10 May 2021
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Agenda
• Part I • The role of proactive monitoring• Navigation of our reports• Tania Wimberley (JSE)
• Part II – educational material• IFRS 13 Common findings report• IAS 1 –Judgements and estimation uncertainty • Sonja Carshagen (JSE)
• Part III – forward looking• Impact of Covid-19• Tania Wimberley (JSE) & Ahmed Mohammadali Haji (UJ)
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Part I
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The JSE Regulatory Landscape
• The Issuer Regulation Guide
• https://www.jse.co.za/regulation/companies-issuer-regulation
• Announcements regarding the Listings Requirements February 2021
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The JSE Regulatory Landscape
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Part II
Fair value
IFRS 13
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Fair Value findings
• 25 Findings on fair value matters, predominantly disclosure
• IFRS 3.91: three
• IFRS 3.93: twenty-two
• Roughly 1/3 of findings related to investment property disclosures
• Consequently, the JSE issued: • ‘Investment property: Common findings report’
• 3 November 2020
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Inputs that determine the FV hierarchy
• Quoted prices (unadjusted) in active market for identical assets/ liabilities readily accessible at measurement date
Level 1
• Inputs other than quoted prices that are directly/ indirectly observable
Level 2
• Unobservable inputsLevel 3
Highest priority
Lowest priority
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Level of the FV hierarchy drives disclosure
“Sunlight is said to be the best of
disinfectants”
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Level of the FV hierarchy drives disclosure
• Not particularly detailed disclosures requiredLevel 1
Level 2
• More detailed qualitative and quantitativedisclosures
Level 3
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IFRS 13 disclosure
All levels
• Valuation techniques
• Level in FV hierarchy
• Transfers between levels
Add for Levels 2 & 3
• Describe the valuation technique
• Describe valuation inputs
Add for Level 3
• Quantitative info: significant unobservable inputs
• Reconciliation
• Sensitivity disclosures
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• Some issuers have maintained:
• FV was derived by an independent valuer
• FV ‘must therefore be correct’
• AFS do not need to include all of the quantitative disclosures of IFRS 13.
However
• The extent of IFRS 13 disclosure is NOT driven by whether valuation was internal vs external
• IFRS 13 disclosures is driven by FV hierarchy
• FV hierarchy, in turn, is driven whether significant inputs are quoted/ observable/ unobservable.
IFRS 13 disclosure
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Quantitative unobservable inputs: IFRS 13.93(d)
JSE observations to qualitative data
• Often too aggregated to be useful
• Objective of the quantitative disclosures is
• NOT to enable users to replicate the entity’s pricing models, but
• RATHER to provide enough information for users to assess whether the entity’s views about individual inputs differ from their own
(IFRS 13.BC192).
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Disclosure of significant unobservable inputs - Disclosure in the AFS reviewed
Property company
• Investment property is their single largest asset
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Significant unobservable inputs– Subsequent AFS
Grouping 1
Grouping 2
Grouping 3
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Disclosure of significant unobservable inputs - Another example of good disclosure
Sector 1
Sector 2
Sector 3
Sector 4
Sector 5
Illustrating that not all inputs were the same/ significant in all sectors
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Disclosure of significant unobservable inputs - Further example of good disclosure
Each property in
the portfolio is listed
Property name
X
Y
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Property portfolio disclosures
• Property companies disclose detailed property portfolio information (s13 JSE Listings Requirements)
• s13 disclosures do not mitigate IFRS 13 disclosures:
• Property portfolio info not always audited
• Information outside of AFS
• Valuations per s13 not necessarily in line with IFRS 13
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Biological assets
• IAS 41 (Agriculture)
• Requires FV measurement for biological assets + agricultural produce
• IFRS 13
• How measure FV
• Disclosure requirements
• Biological assets + agricultural produce often classified as level 3 FV
• Detailed level 3 disclosures therefore required
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Competitive harm
• Some issuers are reluctant to provide required disclosure for commercial reasons
• i.e. could cause comparative harm
• JSE does not consider this a defendable position under IFRS
• IASB considered this matter when deliberating IFRS 8
• Board concluded:• Competitive harm exemption inappropriate, leads to broad non-
compliance with IFRS
• Most competitors already have information about entity
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Investment in subsidiaries
• Listco (Company AFS) carry inv in subsidiaries at FV
• Identified as a KAM by auditor
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Investment in subsidiaries
Significant portion of Company’s Total assets / Total equity
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Investment in subsidiaries
Sensitivity discl
• How reasonable is a 10% change in the discount rate?
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Part II
Judgement and estimation uncertainty
IAS 1
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Matters related to judgement and estimates
• Consistent trend to previous PM reports
• Boilerplate out of IFRS standards
• Not specific to the entity
• Ask yourself:
• Why are we making this decision/ disclosure?
• Is our reasoning clear to the reader?
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Assumptions& sources of estimation uncertainty
Judgementsmade in process of applying Acc
Policies
IAS 1.122- .124IAS 1.125 - .133
SAICA: Educational material # 3: Issued: April 2020
‘Application of IFRS in light of Covid uncertainty’ series
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Judgements in applying accounting policies
Does the proposed disclosure about judgement applied in process of applying accounting policies:
• Identify alternatives management considered i.e. (a) vs (b)
• Explain why the choice was difficult/ judgemental
• Provide entity specific explanations as to why (b) was chosen over (a)
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Assumptions & sources of estimation uncertainty
Do the disclosures about assumptions made about the future and other estimation uncertainty:
• Identify the assumptions
• Prioritise quantifiable disclosures as much as possible
• Explain sensitivity
• Identify most likely view (or apply probability-based outcome)
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Judgement and estimation uncertainty Good disclosure – impact of Covid to AFS
Y/ end date
Y/ end date
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Judgement and estimation uncertainty Good disclosure – impact of Covid to AFS
Co X
revenue
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Judgement and estimation uncertainty Good disclosure – impact of Covid to AFS
Sensitivity discl
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Click to edit Master text styles
Concluding comments
• Does it communicate information users need?
• Is it specific to the entity/ an asset group/ a key operation?
• Avoid ‘disclosure for the sake of disclosure’
Consider the objectives of the proposed disclosure
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Part III
Impact of Covid-19
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JSE letters
• Reflecting the impact of covid-19 on Financial results (May 2020)
• Effective Communication with Investors (Sep 2020)
• https://www.jse.co.za/issuer-regulation-covid-19